Drucker on Profit and Business Purpose

Written by Sean Murphy. Posted in 1 Idea Stage, Books, Quotes, skmurphy

After thinking some more about yesterday’s post on entrepreneurial motivation I thought I would re-read some Peter Drucker, his clarity and prescience continue to impress me. All of these quotes are from Chapter 6 “What is a Business” in “Management: Tasks, Responsibilities, and Practices” a book written in 1974 that anticipates many of the tenets of lean innovation.

There is only one definition of business purpose: to create a customer.

It is the customer who determines what a business is. It is the customer alone whose willingness to pay for a good or for a service converts economic resources into wealth, things into goods.

The typical engineering definition of quality is something that is hard to do, is complicated, and costs a lot of money! But that isn’t quality; it’s incompetence.

What the customer thinks he is buying, what he considers value, is decisive–it determines what a business is, what it produces, and whether it will prosper. And what the customer buys and considers value is never a product. It is always utility, that is, what a product or service does for him.

Profit is not the explanation, cause, or rationale of business behavior and business decisions, but rather the test of their validity. If archangels instead of businessmen sat in directors’ chairs, they would still have to be concerned with profitability, despite their total lack of personal interest in making profits.

A company can make a social contribution only if it is highly profitable.

Managers must convert society’s needs into opportunities for profitable business. That, too, is a definition of innovation.

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Comments (2)

  • SKMurphy » Quotes for Entrepreneurs - June 2009

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    [...] In hindsight I was re-working Peter Drucker’s observation that “Managers must convert society’s needs into opportunities for profitable business. That, too, is a definition of innovation.” See “Drucker on Profit and Business Purpose” for more. [...]

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